The Factors that Determine the Price of Cryptocurrencies

The simple economics of supply and demand determine the price of a cryptocurrency, but there are other factors.

Although cryptocurrencies are available to the public almost a decade ago, their popularity is still relatively new. Many people are now investing in digital coins. Mining is the process of creating these digital coins.

It is only for the technical geeks who use powerful computers to solve complicated mathematical equations to create virtual currencies such as Bitcoin.

Cryptocurrencies
                      Cryptocurrencies

This is the most well-known and oldest of all the currencies. The blockchain technology that powers these coins is crucial in their security and sustainability.

What is a cryptocurrency and how does it work?

First, let’s understand how cryptocurrency differs from fiat currencies (Indian Rupee, US Dollar, etc.). The most important difference between a fiat currency and a legal tender is that it is legally recognized as legal tender by governments.

It is based on the trust that two parties to a transaction place in it. Most countries use a fiat currency system. This means central banks and monetary reserves control the money supply and indirectly control inflation.

Cryptocurrencies do not have to be regulated by the government. They are decentralized. They are not yet accepted as legal tender by most countries. Also, cryptocurrencies will generally have a fixed supply so inflation is unlikely to devalue them.

Both have similar characteristics. Both can be used as a means of exchanging goods and services, and each has a relative store value.

Public ledger for cryptocurrency

Every trade in cryptocurrency is automatically entered into a decentralized ledger, which is not controlled or manipulated at all by any single entity. Cryptography secures all transactions and is accessible to anyone from anywhere at any time.

Node count for cryptocurrency

The number of active wallets on the network is measured by node count. This is an indicator of the cryptocurrency’s value. You can use this information to determine if a currency is trading at a fair price. The number of nodes in a cryptocurrency community also indicates how strong it is. More nodes mean stronger communities.

Cryptocurrency exchanges

An online exchange such as WazirX in India or Binance, which provides information about cryptocurrency, is a good place to start.

There are all details about any cryptocurrency, including its market capitalization and performance over the past weeks or months, a total currency currently in circulation, and current and past values.

These crypto coins such as Bitcoin, Ethereum, or Dogecoin can be traded on these exchanges, but it comes with a cost.

Calculating the price of cryptocurrency

Demand is the best way to determine the price of cryptocurrency coins. A digital coin with high demand will have a higher value. If a coin’s token supply is low and there is little demand, its value will fall.

The level of token utility, i.e. how useful, is another factor that influences the price of crypto coins. If mining is difficult, it will be more difficult to increase supply and create upward pressure on prices when there is high demand.

Mass adoption

The value of a cryptocurrency coin can skyrocket if more people invest. These virtual currencies are still far from being adopted by the majority. Why? They have real-world problems.

One is that they are not able to be exchanged for goods or services as widely as fiat currencies. These digital coins must be more useful and should offer a lucrative deal for the buyer in order to become widespread.

Price volatility

Although cryptocurrency is still a new market, many people aren’t familiar with it. The volatility inherent in new markets is one of their strengths. There are also whale accounts, which hold large amounts of cryptocurrency coins and influence markets to book profits.

Also Read: The Cryptocurrency Jargons explained – All the Terms You Need To Know

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